Shares of the wearable fitness device maker Fitbit (FIT) are soaring on Tuesday, up 4% in early afternoon action. Which is a swift reversal of its recent rout, as FIT stock lost nearly 18% in five days before Tuesday’s open.
Now, with Fitbit up 4% and trading around the $40 level, investors might be worried that they’ve missed their opportune moment to get FIT. Hogwash. Fitbit stock, at or below $40, is still a screaming buy.
While $40 may sound like a lot — especially considering FIT stock was briefly trading as low as $32 a share in Monday’s panic-induced selloff — it’s actually a steal.
Here’s why you should buy Fitbit stock today despite its intraday gains.
The Fitness Tracking King
I’ve adored Fitbit stock from the jump, ever since it submitted its S-1 filing to the Securities and Exchange Commission. Although Fitbit raised its initial public offering price range from the $14 to $16 level to the $17 to $19 level, and ultimately priced at $20 a pop, even that gave investors a heck of a deal, and I snagged myself some FIT at its IPO for just under $30 per share.
The fundamental reason I’m in love with Fibit’s stock is because the company is a dominant first-mover in the rapidly growing wearables market. Some figures put Fitbit’s share of the wearable fitness product category at 85%, and with the market expected to triple in size by 2018, Fitbit is poised to be a huge winner.
Competition will inevitably come, but as it stands Fitbit is dominating all comers: Apple (AAPL), Google (GOOG, GOOGL), Jawbone and Garmin (GRMN) — none of them have cracked the Fitbit code yet.
The reason, as I mentioned earlier, is Fitbit’s first-mover advantage, which it used to layer another advantage on top of that — social. On Fitbit you can share steps taken, running time, distance traveled, calories burned and all that fun stuff with other friends who have the device.
The brilliance here is in the user engagement it encourages, which in turn spurs spontaneous and shareable moments like contests between friends and family. It’s a cycle of engagement that encourages others to go out and buy a Fitbit of their own to participate.
In this way, FIT stock is pulling from Facebook‘s (FB) wheelhouse. The sustainable competitive advantage that each company has is called the “network effect,” and it’s a competitive advantage that strengthens with each new user that begins using that product or service.
Although there were concerns after the most recent quarter over Fitbit’s margins, the company’s 48% gross margin is higher than even the almighty Apple’s. Plus, Revenue jumped 250% in the second quarter, as earnings roared 130% higher, so margins definitely haven’t been a problem.
Don’t cheat yourself out of buying into a solid company just because FIT stock is up over 4% so far on Tuesday. Any time Fitbit shares get below $40, they’re not just a buy … they’re steal.
As of this writing, John Divine was long FIT stock and AAPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
